Life insurance beneficiary files putative class action lawsuit

The putative class action alleges that John Hancock Life Insurance Company (USA) and John Hancock Life & Health Insurance Company (collectively, “John Hancock” or “the company”) did not utilize the Social Security Death Master File (“DMF”)1 and various court subscription services to identify deceased life insurance policyholders. The complaint, however, also alleges that John Hancock utilized the DMF and court subscription services to identify deceased annuity payment beneficiaries. As a result of this alleged “industry wide practice”, plaintiff argues that the company was able to “collect interest on unclaimed benefits, charge against policy benefits and otherwise benefit from holding unclaimed benefits” to the detriment of thousands of policyholders and beneficiaries nationwide.
The complaint alleges that the proposed class representative’s mother (the “policyholder”) purchased a life insurance policy from the company in 1945. When the policyholder passed away in 2006 the policy beneficiary was unaware of the life insurance policy. Following an investigation with the State of Illinois unclaimed property unit, the beneficiary discovered the existence of the policy and sought payment from the company. The complaint asserts that the policy proceeds were never escheated to the State of Illinois pursuant to its unclaimed property laws.

Following payment of the $1,349.71 policy proceeds to the beneficiary, this complaint followed.
The complaint asserts five causes of action and asserts application of Massachusetts law. First, the complaint alleges that John Hancock violated the Massachusetts Protection Act or, alternatively, various State consumer protection laws when the company allegedly: (a) failed in a timely fashion either to notify owners or beneficiaries of unclaimed property or return the unclaimed property; (b) used funds from unclaimed property to generate income for the company’s own benefit; and (c) deducted administrative fees for retaining unclaimed property while making no effort to return the unclaimed property. Second, the complaint alleges that the company has been unjustly enriched by its use of the unclaimed property to generate income and by charging administrative fees for holding the unclaimed property. Third, the complaint alleges that the company engaged in conversion as it exercised dominion and control over the unclaimed property and failed to take reasonable steps either to return the unclaimed property or notify its owners. Fourth, the complaint alleges that the company breached its fiduciary duty to the plaintiff and the class. Fifth and finally, the plaintiff and class seek a declaratory judgment. Specifically, the complaint seeks a declaratory judgment that: (a) the company is prohibited from holding the unclaimed property; (b) the class is declared the true owners of the monies generated from both the use of the unclaimed property and the administrative fees; (c) the company is required to disgorge the unclaimed property to the true owners within thirty days of final judgment, plus pre-judgment interest; (d) the company is required within thirty days of final judgment to return to the class funds previously escheated to any State or jurisdiction; (e) the company is required going forward to use address updating and person locating, web-based lists and other reasonably available systems to ensure accurate notifications of unclaimed property; (f) the company’s practices breach its fiduciary duty and create a constructive trust for the benefit of the class; (g) the company is required to disgorge any fees it has charged class members for possessing, notifying or escheating unclaimed property; and (h) the company is required to disgorge all income earned from unclaimed property funds.
The complaint fails to acknowledge that much of its requested declaratory relief was covered in the Global Resolution Agreement attached to the complaint.

The company entered this Global Resolution Agreement in 2011 following an investigation and audit by approximately thirty States and the District of Columbia. This Global Resolution Agreement manifested with settlements subsequently reached with numerous individual States, including Massachusetts and Illinois, the State from which the proposed class representative hails. The complaint does not explain how Massachusetts law can be applied to consider alleged violations of Illinois unclaimed property laws.
The complaint further argues that John Hancock is not shielded from liability by the 2011 Global Resolution Agreement. According to the complaint, neither plaintiff nor the class were parties or signatories either to the Global Resolution Agreement or the settlements and, thus, did not receive any compensation. However, the complaint does not discuss what duties the policyholder or beneficiary had under the contract to advise the company of their whereabouts or of the death of the policyholder. The life insurance contract itself is not appended to the complaint. The plain language of the life insurance contract could prove significant in determining the company’s duties to the alleged class members. At least one appellate court has found that the plain language of the insurance contract established a life insurer’s “passive role in establishing an insured party’s proof of death.” The same court found that Ohio law provides that the burden of furnishing the life insurer with proof of death lies with beneficiaries or claimants.
This lawsuit follows other private suits asserting unfair claims settlement practices and trade practices as well as violations of state unclaimed/abandoned property laws. To date, other suits in relation to this issue have been brought by still living policyholders, alleged whistle blowers and shareholders.

This suit appears to be the first one brought by a policy beneficiary as a class representative.
As an expert witness Lance Wallach side has never lost a lawsuit. If you have been harmed by an insurance company do something. Do not let your adviser or atty learn on the job at your expense. We have had success with writing a letter and then following up. This is quick and easy, as opposed to a lawsuit. If you are part of a class action you usually get very little. I am not opposed to lawsuits. I am in favor of being made whole.

34 comments:

The IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for not properly filing.

Insurance agents, financial planners and even accountants sold many of these plans. The main motivations for buying into one were large tax deductions. The motivation for the sellers of the plans was the very large life insurance premiums generated. These plans, which were vetted by the insurance companies, put lots of insurance on the books. Some of these plans continue to be sold, even after IRS disallowances and lawsuits against insurance agents, plan promoters and insurance companies.

In a recent tax court case, Curcio v. Commissioner (TC Memo 2010-115), the tax court ruled that an investment in an employee welfare benefit plan marketed under the name “Benistar” was a listed transaction in that the transaction in question was substantially similar to the transaction described in IRS Notice 95-34. A subsequent case, McGehee Family Clinic, largely followed Curcio, though it was technically decided on other grounds. The parties stipulated to be bound by Curcio on the issue of whether the amounts paid by McGehee in connection with the Benistar 419 Plan and Trust were deductible. Curcio did not appear to have been decided yet at the time McGehee was argued. The McGehee opinion (Case No. 10-102, United States Tax Court, September 15, 2010) does contain an exhaustive analysis and discussion of virtually all of the relevant issues.

lan. In fact, in estimating life insurance rates, the taxpayers’ expert in Curcio assumed that there would be no forfeitures, even though he admitted that an insurance company would generally assume a reasonable rate of policy lapse.

Companies should carefully evaluate their proposed investments in plans such as the Benistar Plan. The claimed deductions will be disallowed, and penalties will be assessed for lack of disclosure if the investment is similar to the investments described in Notice 95-34, that is, if the transaction is a listed transaction and Form 8886 is either not filed at all or is not properly filed. The penalties, though perhaps not as severe, are also imposed for reportable transactions, which are defined as transactions having the potential for tax avoidance or evasion.

Insurance agents have been selling such abusive plans since the 1990's. They started as 419A(F)(6) plans and abusive 412i plans. The IRS went after them. They then evolved to single-employer 419(e) plans, which the IRS also went after. The latest scams may be the so-called captive insurance plan and the so-called Section 79 plan.

While captive insurance plans are legitimate for large corporations, they are usually not legitimate for small business owners as a way to obtain a tax deduction. I have not yet seen a legitimate Section 79 plan. Recently, I have sent some of the plan promoters’ materials over to my IRS contacts who were very interested in receiving them. Some of my associates are already trying to help defend some unsuspecting business owners who are being audited by the IRS with respect to these plans.

STOLI"-- in which a life insurance policy is originated primarily or solely for the purpose of resale. They chronicle how the clash of the insurable interest requirement and the evolving secondary life insurance market have led to the rise of STOLI lawsuits. They also analyze the myriad of legal issues that STOLI and stranger-originated annuity transactions raise. The authors write:

IV. THE RISE OF STOLI LAWSUITS

A. Salient Issues

Between 2005 and 2010, over 150 STOLI lawsuits were filed, predominantly by life insurers, although in a few cases policyholders or family members of the insureds initiated the actions. Most complaints made by insurers that alleged a policy was the product of a STOLI transaction sought to rescind the policy to avoid paying the death benefit. The insurers contended that because the ultimate policyholder did not have an insurable interest in the life of the insured at the time the policy was issued, the policy was void or voidable ab initio. Many of these cases also sought policy rescission based on alleged misrepresentations or fraud in the policy's application. Other salient issues at play in the litigations include the effects of the states' incontestability laws, whether the party or parties challenging a policy based on absence of insurable interest have legal standing, the role of premium financing, the obligation of an insurer to return premiums paid for a rescinded policy and questions of conflicts of law.

The critical issue the courts have had to examine in determining whether an insurable interest existed at the policy's inception involves the insured or policy owner's state of mind and the extent to which he or she anticipated the possibility of selling the policy at some future time. Since, in most instances, the policy owner will have died and cannot be examined in court, evidence of intent to sell must necessarily be inferred from the nature, timing and substance of communications between the policy owner, the insured and third parties

Published Articles on VEBA Plans by Lance Wallach:Monday, March 24, 2014

IRS Circular 230

Appeals officers, revenue officers, Counsel or similar officers or employees of the Internal Revenue Service or the Treasury Department.A registered tax return preparer’s authorization to practice under this part also does not include the authority to provide tax advice to a client or another person except as necessary to prepare a tax return, claim for refund, or other document intended to be submitted to the Internal Revenue Service.(4) An individual who practices before the Internal Revenue Service pursuant to paragraph (f)(1) of this section is subject to the provisions of this part in the same manner as attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, and enrolled actuaries.(g) Others. Any individual qualifying under paragraph §10.5(d) or §10.7 is eligible to practice before the Internal Revenue Service to the extent provided in those sections.(h) Government officers and employees, and others. An individual, who is an officer or employee of the executive, legislative, or judicial branch of the United States Government; an officer or employee of the District of Columbia; a Member of Congress; or a Resident Commissioner may not practice before the Internal Revenue Service if such practice violates 18 U.S.C. §§ 203 or 205.(i) State officers and employees. No officer or employee of any State, or subdivision of any State, whose duties require him or her to pass upon, investigate, or deal with tax matters for such State or subdivision, may practice before the Internal Revenue Service, if such employment may disclose facts or information applicable to Federal tax matters.(j) Effective/applicability date. This section is generally applicable beginning August 2, 2011.§ 10.4 Eligibility to become an enrolled agent, enrolled retirement plan agent, or registered tax return preparer.(a) Enrollment as an enrolled agent upon examination. The Commissioner, or delegate, will grant enrollment as an enrolled agent to an applicant eighteen years of age or older who demonstrates special competence in tax matters by written examination administered by, or administered under the oversight of, the Internal Revenue Service, who possesses a current or otherwise valid preparer tax identification number or other prescribed identifying number, and who has not engaged in any conduct that would justify the suspension or disbarment of any practitioner under the provisions of this part.(b) Enrollment as a retirement plan agent upon examination.

All you wanted was a comfortable retirement. What you got was fraud, incompetence, and scams. Fortunately, Lance Wallach and his team are here to help you protect your assets and keep the IRS out of your pockets!

Remember, many advisory firms offer financial planning, insurance, and investment services, but the difference is that Lance Wallach wrote the books on life insurance as well as financial and estate planning that the other consultants learned from!

If you want to sleep soundly at night, don't go to the students for your financial solutions, go to the one who teaches them - Lance Wallach!Lance Wallach's ExpertiseIs Appreciated By All

"Mr. Wallach, thanksso much for taking thetime to talk to me todayabout VEBAs. Anyinformation you cansend me would behelpful. Hopefully, wecan work together inthe future as interest inVEBAs increase."

You've lost money in the market – maybe a substantial amount. Money you thought was going to plan for your future, maybe put your kids through school is now gone. You're hurt and you're angry and we understand. Can you sue your broker, fund manager or financial adviser? It depends. The Big Question: Were You a Victim of Fraud or the Market? The big question is whether your broker did anything illegal.

You can sue only if what your broker did was more than just "bad" in the sense of "unfortunate" or even "awful." Instead, there must have been actual wrongdoing.

Wednesday, March 12, 2014Life Insurance_The Bottom LineIll health has left your mother unable to care for herself.She needs home care to get by.Thankfully she purchaseda long-term care insurance policy over a decade ago andhas been faithfully paying the premiums ever since. Shewas determined her children should not suffer theburden of paying for her care later in life.But the payment from the insurance company neverarrives.You call the insurance company over and overand send them document after document.They denythe claim, citing reasons from“the claim is too late,” to“you did not fill out the paperwork,” to“you filled outthe wrong paperwork.”The denials change each time,often citing provisions in the policy that do not exist,and often contradicting previous denials.Meanwhile,the cost of the care has quickly depleted your mother’ssavings, and now the bills fall to you,the very prospectshe sought to avoid.“[T]he bottom line is that insurancecompanies make money when theydon’t pay claims…They’ll doanything to avoid paying, because ifthey wait long enough,they knowthe policy holders will die.”— Mary Beth Senkewicz, former seniorexecutive at the National Association ofInsurance Commissioners (NAIC)The case of 77-year-old Mary Rose Derks fromMontana attracted congressional attention after the NewYork Times highlighted her plight at the hands ofinsurance company Conseco.13 Her family was forced tosell their small business after Conseco denied the claimone way or another for more than four years. Insurancecompanies have long embraced delaying tactic

Insurance companies bold entry into the senior life insurance marketplace had the desired effect of dramatically increasing its collection of premiums. People buying these policies are informed and believe that, as a result of insurance companies targeted focus on this business segment, upon information and belief, insurance companies solicited and agreed to underwrite hundreds of millions of dollars of life insurance having the following characteristics and earmarks:

The insureds were seniors generally from 70 to 85 years of age; The face amounts of the policies applied for and underwritten were at a higher ratio to the applicants’ net worth than the industry norm; The policies were issued on a single life, rather than on a second-to-die basis, with the result that premiums were markedly higher for the same face amount of coverageand ultimate benefit to the estate; The policies were for a substantial face amount, typically ranging from not less that $1 million to as much as $50 million in the aggregate for a single insured, and ofteninvolved scenarios where the life being insured was contemporaneously applying for, and accepting, life insurance in substantial amounts from other insurers; Virtually all of the policies required an annual premium that would trigger significant gift tax exposure if the insured funded the trust; Pursuant to the terms of some of the life insurance products, after payment of a significant first-year premium, the owner of the policy would not be required to pay a second year premium, all could pay minimum premiums in the third, fourth and fifthyears which was an attractive feature for investors that sought to limit their investment but would not be beneficial for estate planning purposes since the insured would not be entitled to receive a gift tax benefit that would arise from paying the second year premium; Because of the initial high premium requirement for the products, the owner trust typically put the policy into effect by paying the minimum premium payment that insurancecompanies would accept – usually one-sixth or one-fourth of the first year premium — with the balance of the premium being paid by the end of the first quarter; and, investors are informed and believe that insurance companies are licensed to do business in all 50 states, a large majority of the business was being generated from thesame geographic regions of the country. As an expert witness Lance Wallachs side has never lost a case. Agents get a large commission to sell insurance. The sale of insurance is a hard job. Some agents lie tosell insurance. Some agents do not understand what they are selling. Insurance companys are not your friends and are in the business of making money. Most of them need agents to push their products to people that do not want to buy them. Since life insurance is sold, not baught agents are usually used and get a large commission. People do not need an agent and can buy no load life insuranc without acommission. Why does almost all insurance sales results form the efforts of an agent? Most people do not understand insurance. Many people trust insurance companys. Most people need to be pushed to buy insurance. Insurance companys and agents are not allowed to lie to clients. Most do not. Some agents have lied to clients. When you sue do not use a lawyer that needs to learn onthe job.

A life settlement is the process of selling an unneeded or unwanted life insurance policy for fair market.. Traditionally, a life insurance policy owner had limited options for dealing with an unwanted or unneeded policy: Life settlements add an option that allows policy holders a way to maximize value.

Thursday, March 27, 2014Lance Wallach Life Insurance: Life Insurance Claims Denial Information - Lawyers...Lance Wallach Life Insurance: Life Insurance Claims Denial Information - Lawyers...: Major news sources throughout the United States report that insurance providers are issuing life insurance benefits denials more than...

was titled “Hot Topics in Regulation and Litigation for Life Insurers.” In it, he addressed regulatory issues that included developments in claims by state insurance commissioners that life insurers remit proceeds of stale policies to their state's unclaimed property fund, and litigation issues that included bad faith, stranger owned life insurance, and th

health insurance renoYour rights may be affected depending upon whether you have an individual health insurance policy or a group health insurance policy. If you have an individual insurance policy or a group health insurance policy provided to you through your employment with a church or a state or local government, you have certain rights. Those rights include:

Your insurance company must promptly pay your claim – generally within 30 days of receiving the claimYour insurance company cannot deny your claim without first conducting a fair and thorough investigationIf your claim is denied, your insurance company must disclose the factual and legal basis for the denial

a disability insurance lawsuit against The Guardian Life Insurance Company of America in a New Jersey Federal court. The lawsuit involves a New Jersey OB/GYN’s claim for long term disability benefits following injuries he suffered in a car accident.

According to the disability lawyers involved with the lawsuit, Guardian Life Insurance paid the doctor for approximately two years prior to discontinuing benefits. Guardian initially paid the disability claim on the basis that the doctor was working only as an OB/GYN prior to becoming disabled. Through basic internet searches, Guardian learned that the doctor was not only engaged in Obstetrics and Gynecology, but he also was earning money from his work with a laser hair removal machine. Guardian conducted an investigation in order to determine how much pre-disability work was from OB/GYN services versus Cosmetic services. Guardian had further questions about both past and future disability earnings of the doctor. Despite making disability payments for two years, Guardian made a determination that the doctor was no longer eligible for benefits.

“This is a case where the Doctor bought a disability insurance policy that he thought would protect his income if he could not work as an OB /GYN,” said Attorney Gregory Dell of the disability law firm Dell & Schaefer. “This is classic case of total disability versus residual disability.”

The case serves as a warning to Doctors and other medical professionals nationwide that there are multiple factors that an insurance company will consider when it comes time to file a claim for disability income benefits. Disability insurance policies are complex and can be subject to multiple interpretations. Every doctor should purchase a disability insurance policy, but it is important that any disability claimant understands the terms and conditions of their disability policy.

Lincoln Life Insurance Claim was Denied“ My Lincoln life insurance claim was denied “, is usually how the conversation starts. Dealing with the emotional loss of a loved one can be compounded by the financial loss of a loved one. The reason many people buy Lincoln life insurance is to leave money for their families and help them maintain their homes, schools and lifestyles. When their Lincoln life insurance claim is denied that security seems lost.

Why Lincoln Life Insurance Claims are Denied

If a Lincoln life insurance claim was denied, often, it’s because the claims department finds discrepancies between answers on an application and records that are obtained after the claim is made. One of the most common discrepancies is related to medical information. Many Lincoln life insurance claim denials are based on a medical misrepresentation. However, the larger the life insurance policy the less likely this is to happen. With large policies Lincoln life insurance will gather all of the applicant’s medical records before they issue a life insurance policy. When a policy is of a smaller amount the insurer will often not request medical records – instead relying on the answers given on the application.

Another common discrepancy that will cause a Lincoln life insurance claim to be denied is financial information. In some instances an applicant may appear to have incorrectly stated their financial status – either income, net worth or both. Often times on life insurance applications financial information is based on ballpark figures, not exact numbers. This can be a reason for discrepancies that may cause a life insurance claim denial.

No. 16: A STOLI Civil Case in Federal Court in Utahdefendants were the Sheldon Hathaway Family Insurance Trust and Windsor Securities, LLC. The Order was issued five days after the Minnesota order discussed in my posting No. 13. (PHL v. Sheldon Hathaway Trust et al., U.S. District Court, District of Utah, Case No. 2:10-cv-67.)

with Life AnnuitiesAn annuity is a series of payments. In a life annuity, the payments are contingent on the survival of the annuitant. In an annuity certain, the payments are not contingent on the survival of the annuitant.

I do not have any particular concerns about annuities certain. Over the years, however, I have expressed serious concerns about life annuities from the consumer's point of view. In the August 2012 and November 2012 issues of The Insurance Forum, I offered a suggestion on how consumers may avoid the problems associated with life annuities. I was disappointed by the lack of response to the suggestion, and I revisit the suggestion here.

My Concerns about Life AnnuitiesThe buyer of a life annuity purchases insurance protection against living too long. One major concern is that it is impossible--without making crucial assumptions that are likely to be unreliable--to measure the price of the protection from the consumer's point of view. In other words, the consumer in effect has to buy insurance protection with an unknown price.

Another major concern is what happens upon the death of the annuitant. In a straight life annuity, in which there are no further payments after the death of the annuitant, the annuitant's survivors receive nothing. In a life annuity with ten years certain, the survivors would receive nothing if the annuitant dies after the ten-year period, and would receive only the payments remaining in the ten-year period if the annuitant dies during the ten-year period.

There is one commonality of all insurers when it comes to the denial of accidental death claims: They will lie. The lies come in differing forms, but nonetheless are lies. What makes this conduct worse is that this behavior is common in the industry and comes at a time when a family is earnestly seeking benefits for the lost of a loved one due to unexpected and sudden circumstances.

You would think nothing could be simpler than explaining what an accident is until you try to explain that to an insurer. An accidental death policy which will set forth a definition of “accidental death” that encompasses several pages and lists may exemptions from coverage. No one can complicate a simple concept like an insurer who does not want to pay claims.

Why do insurers do this? They have little to lose. So, why not test the waters? If the family is bereaved and does not want to relive the trauma time and again during the fight with the insurer and give up the claim, then the insurer wins. It gets to keeps its money just by saying “no.” This happens more often than people care to admit as no one wants to acknowledge weakness or wished to discuss such personal business with friends who may give them the advice that there are attorneys who fight these cases every day. Instead, they will fall prey to their emotions and forget that they need to take of business in the same fashion as the insurer. For this reason, I always advise: “Better to get pissed off than pissed on.”

The insurer is making a decision based on their economic facts rather than the facts of the claim. The insurer has provided this coverage for a very small premium since their actuaries know that few persons die from accidental causes, especially in this day of sophisticated medical care. Therefore, they are not making the profit they are seeking without denying many of the claims. Do not underestimate the amount of money involved as U.S. insurers hold accidental death polices valued at nearly $7.7 trillion dollars which earns them $25 million in annual revenue. So, the stakes involved are huge when it comes to insurance company profitability. Due to dishonest conduct in accidental death claims, several insurers have been taken to task by attorney general offices in several states and fined millions of dollars. Unfortunately, most state insurance commissioners will not take any action concerning insurer conduct of this type.

This situation is made worse when the policy is governed under ERISA (Employee Retirement and Security Act of 1974) as part of a group policy issued by an employer. ERISA does not permit jury trials, compensatory, or punitive damages. Thus, the insurer only has the policy amount to lose. So, why not take the risk and make the victim’s family fight for it. Even if the victim’s family appeals (which is encouraged by the insurer), the case will be denied forever as most people will not get the experienced counsel required to su

Life, Health & Disability Insurance & ERISA LitigationThe stakes have been raised in the insurance gameInsurance products are based upon one thing: calculated risk. And these days the risks for insurers are often higher than the rewards. More lawsuits, greater scrutiny of industry practices, and increased regulation are among the many challenges facing insurers. Here are some others: Rescissions based on material misrepresentations in policy applications are being closely scrutinized, with proposed legislation seeking to limit or eliminate rescissions. Stranger Owned Life Insurance policies are facing increased regulation and lawsuits. Sales of insurance products to seniors are under heightened scrutiny by regulators. Policyholder lawsuits alleging bad faith denial of claims and improper rescission are going to trial more often in front of increasingly sympathetic juries. With the stakes rising higher and the margin for error becoming narrower, it’s more important than ever to have a partner who can help you stay ahead of the game.- See more at: http://www.manatt.com/LifeHealthDisabilityInsurance.aspx#sthash.hIYAmmNj.dpuf

By Tom Howell Jr. - The Washington Times - Thursday, February 6, 2014The IRS is still trying to decide whether it will end up suing anyone who refuses to obtain health insurance or pay the tax penalty required under Obamacare’s “individual mandate,” and how much they would have to owe before the tax agency begins to care.

With the mandate deadline less than two months away, it’s the latest uncertainty as the administration tries to figure out how far it should go in enforcing the most controversial parts of the AffordableCare Act.

“I don’t know if a decision has been made about that,” IRS Commissioner John Koskinen told Congress on Wednesday, vowing to try to get an answer for Rep. Sam Johnson, a Texas Republican who was prodding him on the issue.

Starting this year, the Affordable Care Act penalizes Americans who can afford health insurance but choose not to obtain it. Known as the individual mandate, it sparked a wave of conservative protests before the Supreme Court upheld it in 2012 as a legitimate use of Congress‘ power to tax.

But it is not clear how far the IRS plans to go in enforcing the mandate during next year’s tax season, when filers must begin to report whether they held health insurance in the prior year.

For one thing, the law prohibits the agency from filing liens on the delinquent person, which limits its options.

“I have no idea under what circumstances the IRS would bring lawsuits,” said Timothy Jost, a health policy expert at Washington and Lee University School of Law. “Basically, they’re going to try to grab people’s refunds.”

An IRS spokesman declined to comment on the issue Thursday, beyond what Mr. Koskinen said to Congress on Wednesday.

Mr. Johnson said in written statement Thursday that “not only has Obamacare canceled health plans and increased premiums for millions of Americans, but now it can take people to court for not having health insurance. That’s wrong, this is America.”

The individual mandate was included in the law to make sure enough young, healthy people purchased insurance on Obamacare’s new health exchanges and kept premiums in check when people with pre-existing medical conditions, who no longer can be denied coverage, enrolled.

Several exemptions from the mandate were built into the health care law, covering everyone from illegal immigrants and prisoners to those who have religious conscience objections, such as the Amish; and health care sharing ministries members, who take care of each oth

Lance wallach expert witness expert witness servicesMost people have never heard of a Section 79 plan because, it is a wealth building tool pitched by insurance agents who really do not understand the math behind the plan. Section 79 plans can cause people huge problems that Lance Wallach knows how to help solve. Remember, many advisory firms offer financial planning, insurance, and investment services, but the difference is that Lance Wallach wrote the books on life insurance as well as financial and estate planning that the other consultants learn from! If you want to sleep soundly at night, don;t go to the students for your financial solutions, go to the one who teaches them.-Lance Wallach.

Abusive Tax Sheltersposing the imposition of Section 6707A penalties along with requests for lengthy extensions of the Statute of Limitations for the purpose of assessing tax. Many of these taxpayers stopped taking deductions for contributions to these plans years ago, and are confused and upset by the IRS's inquiry, especially when the taxpayer had previously reached a monetary settlement with the IRS regarding its deductions. Logic and common sense dictate that a penalty should not apply if the taxpayer no longer benefits from the arrangement.

Treas. Reg. Sec. 1.6011-4(c)(3)(i) provides that a taxpayer has participated in a listed transaction if the taxpayer's tax return reflects tax consequences or a tax strategy described in the published guidance identifying the transaction as a listed transaction or a transaction that is the same or substantially similar to a listed transaction. Clearly, the primary benefit in the participation of these plans is the large tax deduction generated by such participation. It follows that taxpayers who no longer enjoy the benefit of those large deductions are no longer "participating ' in the listed transaction. But that is not the end of the story.

Many taxpayers who are no longer taking current tax deductions for these plans continue to enjoy the benefit of previous tax deductions by continuing the deferral of income from contributions and deductions taken in prior years. While the regulations do not expand on what constitutes "reflecting the tax consequences of the strategy", it could be argued that continued benefit from a tax deferral for a previous tax deduction is within the contemplation of a "tax consequence" of the plan strategy. Also, many taxpayers who no longer make contributions or claim tax deductions continue to pay administrative fees. Sometimes, money is taken from the plan to pay premiums to keep life insurance policies in force. In these ways, it could be argued that these taxpayers are still "contributing", and thus still must file Form 8886.

It is clear that the extent to which a taxpayer benefits from the transaction depends on the purpose of a particular transaction as described in the published guidance that caused such transaction to be a listed transaction. Revenue Ruling 2004-20, which classifies 419(e) transactions, appears to be concerned with the employer's contribution/deduction amount rather than the continued deferral of the income in previous years. This language may provide the taxpayer with a solid argument in the event of an audit.

As an expert witness Lance Wallach's side has never lost a case. People need to be careful of 419 Welfare Benefit Plans, 412i plans, Section 79 plans and Captive Insurance Plans. Most of these plans are sold by insurance agents. If you are in an abusive, listed or similar transaction plan you need to file under IRS 6707a. The participant files form 8886, and the salesmen or accountant who signs the tax returns files form 8918 if they got paid over $10,000. They are called Material Advisors and face a minimum $100,000 fine. Some plans are offshore which could involve FBAR or OVDI filings. If you have money overseas you probably need to file for IRS tax amnesty. If you want to reduce the tax we suggest that you first file and then opt out. For more information Google Lance Wallach.

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

This article appeared in the November 2009 Newsletter to the New Jersey Association of Public Accountants

If you are a small business owner, accountant or insurance professional you may be in big trouble and not know it. IRS has been fining people like you $200,000. Most people that have received the fines were not aware that they had done anything wrong. What is even worse is that the fines are not appeal-able. This is not an isolated situation. This has been happening to a lot of people.

Currently, the Internal Revenue Service (“IRS”) has the discretion to assess hundreds of thousands of dollars in penalties under §6707A of the Internal Revenue Code (“Code”) in an attempt to curb tax avoidance shelters. This discretion can be applied regardless of the innocence of the taxpayer and was granted by Congress. It works so that if the IRS determines you have engaged in a listed transaction and failed to properly disclose it, you will be subject to a potentially draconian penalty regardless of any other facts and circumstances concerning the transaction. For some, this penalty has been assessed at almost a million dollars and for many it is the beginning of a long nightmare.

The following is an example: Pursuant to a settlement with the IRS, the 412(i) plan was converted into a traditional defined benefit plan. All of the contributions to the 412(i) plan would have been allowable if they had initially adopted a traditional defined benefit plan. Based on negotiations with the IRS agent, the audit of the plan resulted in no income and minimal excise taxes due. This is because as a traditional defined benefit plan, the taxpayers could have contributed and deducted the same amount as a 412(i) plan.

Towards the end of the audit the business owner received a notice from the IRS. The IRS assessed the client penalties under the §6707A of the Code in the amount of $900,000.00. This penalty was assessed because the client allegedly participated in a listed transaction and allegedly failed to file the form 8886 in a timely manner.

Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...: I’ve had several calls lately from doctors who are being pitched Section 79 plans and are wondering if these plans are any good. The doctor...

Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...Lance Wallach Life Insurance: Why You Should Stay Away from Section 79 Life Insu...: I’ve had several calls lately from doctors who are being pitched Section 79 plans and are wondering if these plans are any good. The doctor...

Lance Wallach Expert at Your ServiceTrust our expert team with your service, we assure that you will have a fantastic experience with us every time.

Life Insurance Policy Gone Wrong

Protecting Clients From Fraud, Incompetence, and ScamsBy: Lance WallachPublished by John Wiley and Sons, Inc.

Excerpts have been taken from this book about:

Bruce Hink, who has given me permission to utilize his name and circumstances, is a perfect example of what the IRS is doing to unsuspecting business owners. What follows is a story about Bruce Hink and how the IRS fined him $200,000 a year for being in what they called a “listed transaction”. In addition, I believe that the accountant who signed the tax return and the insurance agent who sold the retirement plan will each be fined $200,000 as material advisors. We have received a large number of calls for help from accountants, business owners, and insurance agents in similar situations. Don’t think this will happen to you. It is happening to a lot of accountants and business owners, because most of these so-called listed, abusive plans, or plans substantially similar to the so-called listed, are currently being sold by most insurance agents.

Bruce was a small business owner facing $400,000 in IRS penalties for 2004 and 2005 for his 412(i) plan (IRC6707A). Here is how the story developed.

In 2002 an insurance agent representing a 100-year-old well-established insurance company suggested he start a pension plan. Bruce was given a portfolio of information from the insurance company, which was given to the company’s outside CPA to review and to offer an opinion. The CPA gave the plan the green light and the plan was started for tax year 2002.

Contributions were made in 2003. Then the administrator came out with amendments to the plan, based on new IRS guidelines, in October 2004.

The business owner’s agent disappeared in May 2005 before implementing the new guidelines from the administrator with the insurance company. The business owner was left with a refund check from the insurance company, a deduction claim on his 2004 tax return that had not been applied, and without an agent.

I took six months of making calls to the insurance company to get a new insurance agent assigned. By then, the IRS had started an examination of the pension plan. Bruce asked for advice from the CPA and the local attorney (who had no previous experience in such cases), which made matters worse, with a “big name” law firm being recommended and more than $30,000 in additional legal fees being billed in three months.

To make a long story short, the audit stretched on for more than two years to examine a two-year old pension with four participants and $178,000 in contributions.

During the audit, no funds went to the insurance company. The company was awaiting IRS approval and restructuring the plan as a traditional defined benefit plan, which the administrator had suggested and which the IRS had indicated would be acceptable. The $90,000 2005 contribution was put into the company’s retirement bank account along with the 2004 contribution.

In March 2008, the business owner received an apology from the IRS agent who headed the examination. Even this sympathetic IRS agent thinks there is a problem with the IRS enforcement of these Draconian penalties. Bel

Lance Wallach Expert at Your ServiceTrust our expert team with your service, we assure that you will have a fantastic experience with us every time.

Life Insurance Policy Gone Wrong

Protecting Clients From Fraud, Incompetence, and ScamsBy: Lance WallachPublished by John Wiley and Sons, Inc.

Excerpts have been taken from this book about:

Bruce Hink, who has given me permission to utilize his name and circumstances, is a perfect example of what the IRS is doing to unsuspecting business owners. What follows is a story about Bruce Hink and how the IRS fined him $200,000 a year for being in what they called a “listed transaction”. In addition, I believe that the accountant who signed the tax return and the insurance agent who sold the retirement plan will each be fined $200,000 as material advisors. We have received a large number of calls for help from accountants, business owners, and insurance agents in similar situations. Don’t think this will happen to you. It is happening to a lot of accountants and business owners, because most of these so-called listed, abusive plans, or plans substantially similar to the so-called listed, are currently being sold by most insurance agents.

Bruce was a small business owner facing $400,000 in IRS penalties for 2004 and 2005 for his 412(i) plan (IRC6707A). Here is how the story developed.

In 2002 an insurance agent representing a 100-year-old well-established insurance company suggested he start a pension plan. Bruce was given a portfolio of information from the insurance company, which was given to the company’s outside CPA to review and to offer an opinion. The CPA gave the plan the green light and the plan was started for tax year 2002.

Contributions were made in 2003. Then the administrator came out with amendments to the plan, based on new IRS guidelines, in October 2004.

The business owner’s agent disappeared in May 2005 before implementing the new guidelines from the administrator with the insurance company. The business owner was left with a refund check from the insurance company, a deduction claim on his 2004 tax return that had not been applied, and without an agent.

I took six months of making calls to the insurance company to get a new insurance agent assigned. By then, the IRS had started an examination of the pension plan. Bruce asked for advice from the CPA and the local attorney (who had no previous experience in such cases), which made matters worse, with a “big name” law firm being recommended and more than $30,000 in additional legal fees being billed in three months.

To make a long story short, the audit stretched on for more than two years to examine a two-year old pension with four participants and $178,000 in contributions.

During the audit, no funds went to the insurance company. The company was awaiting IRS approval and restructuring the plan as a traditional defined benefit plan, which the administrator had suggested and which the IRS had indicated would be acceptable. The $90,000 2005 contribution was put into the company’s retirement bank account along with the 2004 contribution.

In March 2008, the business owner received an apology from the IRS agent who headed the examination. Even this sympathetic IRS agent thinks there is a problem with the IRS enforcement of these Draconian penalties. Bel

Testimonials

"Mr. Wallach, thanks so much for taking the time to talk to me today about VEBAs. Any information you can send me would be helpful. Hopefully, we can work together in the future as interest in VEBAs increase."

Corman G. FranklinOffice of the Assistant Secretary for PolicyU.S. Department of Labor